Sega WebTV to run Windows CE

Sega's new Dreamcast gaming console will open a new front in the lucrative home video game market with the first WebTV product running the Windows CE operating system.

Sega teamed up with WebTV to create Dreamcast, which may be the first TV set-top box from a major vendor that offers high-end online gaming, Internet access, and interactive television, as well as the first glimpse at WebTV running on Microsoft's Windows CE operating system.

Sega introduced Dreamcast, its next generation 3D gaming console, in Japan
at the Sega New Challenge Conference in Tokyo on Tuesday. Dreamcast runs an
embedded version of Windows CE, Microsoft's operating system for handheld
and set-top devices. CE will also run future versions of the WebTV set-top box.
The Sega Dreamcast in Japan appears to be the first shipping product
featuring the Windows CE version of WebTV.

WebTV software will reside on the Dreamcast box. A CD-ROM which enables the
WebTV service will be available in Japan next Spring, according to Steve
Guggenheimer, director of the digital television group at Microsoft, WebTV's parent company.

The first major gaming machine to include a modem to enable networked
gaming, Dreamcast features a 200-MHz RISC processor from Hitachi with enhanced floating point
processing to enable 3D graphics, according to Sega.

"Windows CE is the client operating system that enables the Dreamcast
machine to play games and support some of the client technologies, such as
Web browsing," said Guggenheimer. "This demonstrates that the service is
independent from the platform."

Sega will use the WebTV network to enable online gaming in Japan,
Guggenheimer said, but would not confirm that the WebTV service will be
offered with the North American version of Dreamcast, expected next Fall.

It will hit stores in Japan in November, for an estimated retail price of
approximately $240.

The Sega-WebTV-Microsoft alliance complicates the already convoluted web of
partners and competitors vying for a slice of the Internet appliance
market. Sega's Dreamcast with WebTV software will directly compete with
WebTV devices from Philips and Sony.

However, Guggenheimer sees no discrepancy in Microsoft's role as developer
of the "building blocks" for existing and future information and
entertainment appliances.

"In the case of Sega, it's a logical extension of the gaming device," he
said. "We work with lots of different vendors and they can choose how they
want to apply [our software]. Philips and Sony have the same
opportunities. It's a tricky space."

Apart from questions about Microsoft's strategy, both WebTV and Sega would
seem to benefit from the alliance. WebTV will expand its network beyond the
400,000 owners of its set-top boxes and Sega will boost its chances in the
competitive gaming console market, where it competes with the Sony PlayStation and the Nintendo 64.

"WebTV understands that for them to be successful, they need to look beyond
their own retail platform and look into other Internet appliances such as
gaming consoles," said Sean Kaldor, an analyst at IDC. "We expect to see deals like this from
them in the future."

"This shows the power of what the Sega Dreamcast can do," Kaldor said.
"This is a real strong enhancement for Dreamcast without any real costly
new hardware or software added onto the system."

Sega should take the industry lead in offering home video game hardware
with communications capability, with some analysts predicting that
Dreamcast is likely to achieve its shipment target of one million units by
year-end.

Few, however, said Sega could beat Sony. Following its launch in Japan in
December 1994, Sony's 32-bit PlayStation game console quickly captured the
leading position among game machines there, riding a wide variety of games
software.

"Sony can produce a new machine with similar functions sometime later, so
those who began gaming with PlayStation, in particular, may just wait for
Sony," said Yuichi Kobayashi, a New Japan Securities analyst.

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